This was an appeal in the epic Neurim v Mylan battle against orders declaring that Flynn Pharma was not an exclusive licensee of the patent in suit and that the Claimants, whose patent was found valid and infringed, were responsible for the Defendants’ costs of the proceedings. In its decision, the Court of Appeal clarified certain provisions in a licence did not affect its status as an exclusive licence. The court also considered the appropriate order for costs in light of an unusual set of circumstances following parallel EPO proceedings.
This appeal relates to the first set of proceedings which concerned the parent patent (for more recent developments in Neurim v Mylan take two see “Neurim again! Final Injunctions - to stay or not to stay, that was the question”). At first instance Marcus Smith J concluded that the patent in issue, EP (UK) 1 441 702 (“EP’702”) (as proposed to be amended), was valid and had been infringed, but that the Second Claimant (“Flynn”) did not have an exclusive licence so did not have standing to bring proceedings.
A final order hearing was held on 16 December 2021 at which the Defendants (“Mylan”) were ordered to pay the Claimants’ costs subject to a deduction to reflect the outcome of the exclusive licence issue.
A few days later, a hearing took place at the EPO at which the Board of Appeal announced that EP’702 was invalid for insufficiency leading to its revocation. Given EP’702 was now deemed to never have existed the Claimants infringement claim was dismissed and Mylan succeeded in arguing that the costs order should be reconsidered. Based on the new situation, Marcus Smith J awarded the majority of the costs to Mylan as the commercial winner. See our earlier article on this decision here: Going out with a Bang, what a difference 2 days makes: Neurim v Mylan.
Even though EP’702 had been revoked, the exclusive licence issue was still important to subsequent proceedings between the same parties concerning a divisional patent and therefore the point was permitted to proceed on appeal.
The Court of Appeal decision
The exclusive licence issue
Arnold LJ (giving the judgment of the court) allowed Neurim’s appeal, holding that whilst the judge was correct to say that the right to bring proceedings for infringement under section 67(1) of the Patent Act 1977 was not expressed to be a necessary condition for 'exclusivity', he was wrong to hold that this was affected by clause 17 of Flynn’s licence. The agreement in question satisfied the key requirement for an exclusive licence. Clause 17 simply regulated how the parties should proceed in the event of litigation, it did not prevent Flynn from being a claimant. Additionally, nothing in section 67(1) required the exclusive licensee to be able to take action independently of the patentee. In any event, section 67(3) requires the proprietor to be joined as a party if proceedings are taken by an exclusive licensee.
Arnold LJ also rejected Mylan’s argument (in a respondent’s notice) that, in order to fall within the definition in section 130(1), an exclusive licence must be co-extensive with a claim of the patent. A "right in respect of the invention" under section 130(1) covers a right in respect of part of the field covered by a claim. This interpretation of section 130(1) is supported by section 67(2) and the case law. In so holding, Arnold LJ confirmed the judgment of Marcus Smith J except for a “potential qualification arising out of the use of the word ‘sliver’”. Arnold LJ noted that there may be a limit to “how far one can salami-slice the monopoly in a claim” but considered that Flynn’s licence was not “near to any possible limit”.
The costs issue
The Claimants appealed on three grounds.
Arnold LJ first rejected ground 2, which concerned the discretion to change the costs order (jurisdiction to change the order was accepted). He held that the revocation of EP’702 was plainly a material change in circumstances. The Claimants had failed in their objective to exclude Mylan from the market and obtain the desired relief. The judge was therefore correct to have reversed his previous costs order, as costs should generally reflect the substantive result of the proceedings.
Arnold LJ then considered ground 1, which concerned whether Mylan’s success at the EPO meant it was also the successful party in the English proceedings. He held that, although the judge recognised that the court may make a different order (other than the general rule that an unsuccessful party pays the successful party’s costs), he had erred in treating Mylan’s EPO success as dispositive of the incidence of costs and so the Court of Appeal would proceed to consider the appropriate order.
First, the possibility of making an issues-based order was considered (the subject of ground 3) but Arnold LJ held that an issues-based assessment was not appropriate on the facts – although Mylan won, the reason for this was extraneous to the English proceedings.
Arnold LJ instead considered that the key to the appropriate costs order was that the judge had concluded that the costs of the English proceedings at first instance after 3 June 2020 (when the Board of Appeal decided to expedite the hearing) had been wasted. Given the parties did not dispute the finding that both sides were equally at fault for continuing to trial, Arnold LJ held that the correct response was to make no order for costs save with regard to the exclusive licence issue. Each side would be left to bear the costs that it wasted.
This decision will be interesting reading for anyone with an exclusive licence under a patent. It clarifies that provisions in an exclusive licence agreement concerning how the parties should proceed in the event of litigation, including whether a licensee can bring a claim independently of the patentee, should not affect the exclusivity of the licence.
Exclusive licensees will undoubtedly welcome this decision, as provisions governing how the parties conduct any proceedings to restrain infringement of licensed patent rights are likely to be included in many exclusive licences. Introduction of additional conditions for a licence to be considered exclusive would have had wide-ranging implications for licensees and patent holders alike.
The Court also rejected the respondent’s notice argument regarding the scope of the licensed rights. This confirms that a licensee (indeed several licensees) can be granted exclusive rights over different aspects of a patented invention (although just how small a licensed “sliver” can be was left open).
On the costs aspects, the unusual set of circumstances may never be repeated but it will be important for practitioners to consider this decision when conducting future proceedings with parallel UK and EPO aspects. Failure to keep the court informed about events at the EPO can have significant cost implications for all parties. In these circumstances, the court could exercise its discretion as to costs and will not be limited to the orders sought by the parties.